Analysis of Cost Overruns in Saudi Arabia Construction Projects: A University Case Study

Abstract

Public projects in Saudi Arabia have been experiencing low construction project performance for the past decade. Studies have identified the low-bid delivery method as an important factor in causing such delays. In addition, low bids for contracts have not reflected the actual project cost. A case study was conducted at a university campus in northern Saudi Arabia in which the actual project costs for four projects were examined. The study found that all four projects’ costs were higher than the original bid. In addition, a large survey was conducted of 804 classified contractors and universities representatives who identified change orders as the most common factor causing cost overruns in Saudi Arabia. Previous studies showed that some contractors aim to submit low bids for winning the competition then change orders to reduce their losses. Consequently, low bids also lead to cost overruns. In a comparison using the result of a case study and the results of the Performance Information Procurement System (PIPS), Saudi Arabia’s delivery system was identified as a potential cause of project performance issues.

Lessons Learned Framework for Efficient Delivery of Construction Projects in Saudi Arabia

“…Contracting with the lowest bidder was also found to be one of the top contributors to schedule delays in public construction projects in Saudi Arabia. Alzara, et al (2018) analysed cost overruns in the construction of a higher education institute in Saudi Arabia and found that bids submitted by construction companies who eventually succeeded in getting the contract, were much lower than the market project costs. This was remediated through variation and change orders that led to cost overruns.…”

“…Therefore, the final product could differ widely from what had been initially planned. The inefficient and ineffective project implementation is a result of traditional regulations as well as poor management practices; either those of the owner's organization, the pre-construction team or the construction team, as referred to by Gopang, Imran and Nagapan (2020), Mitra and Wee Kwan Tan (2012), Simushi (2017), Alofi, Kashiwagi and Kashiwagi (2016) and Alzara, et al (2018). The project manager as a focal point is appointed after the contract awarding.…”

“…The traditional procurement method, design-bid-build, dominates and is extensively practiced in the KSA. This method lacks innovation and does not make use of new developments in design, materials, and construction approaches, and constitutes a potential cause of projects poor performance (Simushi, 2017;Alofi, Kashiwagi and Kashiwagi, 2016;Alzara, et al, 2018). Procurement is more important than the construction phase according to Kabirifar and Mojtahedi (2019).…”

“…The fact of the matter is that the constrained capacity the sector suffered from has resulted in difficulties in implementing projects efficiently and effectively. While a number of researchers have identified and have listed major sources of project overruns and defined the burden of each key player (Alzara, et al, 2018, Mahmid, 2013, Gopang, et al, 2020, Simushi, 2017 the root causes of the problem have not been diagnosed. These causes are the organizational setup, the old-fashioned regulations, and pre-construction procedures that yield issues for project implementation throughout the project's lifecycle.…”

Towards a sustainable construction industry: Delays and cost overrun causes in construction projects of Oman

“…Findings indicated that out of the 34 different items used to measure causes of cost overrun, the most important factors included: awarding of tender, or bids to the lowest bidder, change in design of the project by the owner, or consultant, inadequate project planning, lengthy periods between project design and actual implementation, and delay in payments. Alzara, Kashiwagi, and Al-Tassan (2016) expounded on the relationship between change order and cost overrun among the lowest bidding contractors. Firstly, the author explains the problem with the tendering system of KSA, where many bids are awarded to the contractors who present the lowest cost estimate for completing the project.…”